ch 4 exam questions
can you give some examples of qualified retirement plans?
Traditional IRA, Roth IRA, SIMPLE, SEP and 401k
in group life policies a certificate of insurance is given to: a- each insured person b- the group sponsor c- the insurance producer d- the policyholder to keep on file
a- in group life policies individual certificates are given to each insured person
all of the following benefits are available under Social Security EXCEPT a- old-age and retirement benefits b-disability benefits c- death benefits d- welfare benefits
d- social security is an entitlement program, not a welfare program
Social Security was created to provide all of the following benefits EXCEPT: a- unemployment income b- survivors benefits c- disability income d- retirement income
a- social security is designed to provide protection against financial loss due to old age, disability, or death. it also provides income during retirement.
which of the following is an eligibility requirement for all social security disability income benefits? a- have attained fully insured status b- be disabled for at least 1 year c- have permanent kidney failure d- be at least age 50
a- although social security offers may benefit such as retirement survivors and Medicare, only those who have attained fully insured status are eligible for disability income benefits. contributing social security for 40 quarters (10 years) attains fully insured status.
what is the official name for the social security program? a- old age survivors disability insurance b- social insurance program c-defined benefit retirement insurance d- qualified pension plan
a- social security is formally called old age survivors disability insurance- OASDI
all the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT: a- the policy is owned by the company b- any type of insurance policy may be used c- the employer pays bonus to a selected employee to fund the policy d- it is considered a nonqualified employee benefit
a- the policy is owned by the employee
all of the following would be eligible to establish a Keogh retirement plan EXCEPT: a- a sole proprietor of film development store with no employees b- a hair dresser who operates her business at her house c- the president and employee of a family corporation d- a sole proprietor of a service station who employs four employees
c- Keogh plans are for self employed individuals and their employees
SIMPLE Plans require all the following EXCEPT: a- no other qualified plan can be used b- no more than 100 employees c-employees must receive a minimum of $5,000 in annual compensation d- at least 1,000 employees
d- a SIMPLE plan is available to small business that employ not more than 100 employees receiving at least $5,000 in compensation from the employer during the previous year
when would life insurance death benefits be tax free?
if paid as a lump sum to the beneficiary
in a life settlement contract, whom does the life insurance broker represent? a- the owner b- insurer c- beneficiary d- the life settlement intermediary
a- life settlement broker is a person who for compensation solicits, negotiates or offers to negotiate a life settlement contract. life settlement brokers represent only the policyowners.
what is the main purpose of the Seven-pay test? a- it guarantees the minimum interest b- it determines if the insurance policy is a MEC c- it requires level premium payments for 7 years d- it ensures that the policy benefits are paid out in 7 years
b- the seven-pay test determines whether an insurance policy is "over-funder" or if its a modified endowment contract. in other words the cumulative premiums paid during the first seven years of policy must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest
group life insurance is a single policy written to provide coverage to members of a group. which of the following statements concerning group life is correct? a- 100% participation of member is required in noncontributory plans b- each member covered receives policy c- coverage cannot be converted when an individual leaves the group d- premiums are determined by age, occupation, and individual underwriting
a- if the employer pays all of the premium then all employees must be included
all of the following would be different between qualified and nonqualified retirement plans EXCEPT: a- taxation of withdrawals b-taxation of contributions c-IRS approval requirements d- Taxation on accumulation
d- taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ
who is the third-party owner? a- an insurer who issues a policy for two people b- an employee in a group policy c- an irrevocable beneficiary d- a policyowner who is not the insured
d- third-party is a legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it
an insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. the insured knows that his financial state will worsen even more with the upcoming medical expenses. what option could the insured utilize? a- viatical settlement b- estate liquidation c- nonpayment of premium d- change of beneficiary
a- a viatical statement allows an insured with a life-threatening condition to sell the existing policy in order to receive benefits when they are most needed. Viators typically receive a percentage of the policy face value from the person who purchases the policy.
if a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an: a-modified endowment contract b-accelerated benefit policy c- endowment d- nonqualified annuity
a- any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract is called a Modified Endowment Contract. It loses the benefit of a standard life contract
which of the following statements regarding the taxation of MEC is FALSE? a- withdrawals are not taxable b- distributions before age 59.5 insure a 10% penalty on policy gains c- policy loans are taxable distributions d- accumulations are tax deferred
a- any distributions from MECs are taxable including withdrawals and policy loans. all of the other statements are true.
all of the following statements concerning an employer sponsored nonqualified retirement plan are true EXCEPT: a- the plan is not approved for favorable tax treatment by the IRS b- the employer can receive a current tax deduction for any contributions made to the plan c- the plan is a legal method of accumulating money for retirement needs. d- the plan can discriminated as to who may participate
b- employers do not receive a current tax deduction for any contributions made to a nonqualified plan. the plans are legal: however, they do not qualify for any favorable tax treatment under the IRS Rules.
which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policyowner? a- third-party ownership b- an irrevocable beneficiary c- a buy-sell agreement d- family term rider
a- contracts that are owned by someone other than the insured are known as a third-party ownership. Most policies involve third party ownership are written in business situations or for minors in which the parent owns the policy
an employee is joining a group insurance plan. in order to avoid having to prove insurability, what must the employee do? a- join during the open enrollment period b- provide medical records to the insurer c- sigh a statement of continued good health d- nothing: proof of insurability is never required in group policies
a- if one applies for coverage after the open enrollment period, proof of insurability may be required in order to avoid adverse selection
The president of a manufacturing company has offered one of the company's officers a special individual annuity plan that is unavailable to lower-echelon employees. This plan would be funded with before-tax corporate dollars and it does not meet government approval standards. this annuity plan is: a- a nonqualified annuity plan b- an executive annuity plan c- subject to government standards d- illegal
a- nonqualified plans are perfectly legal way for selected employees to receive certain types of benefits. Before tax corporate dollars can be used for these plans, and they are not subject to government standards. Because of this, however nonqualified plans contributions are not tax-deductible unlike with qualified plans.
the advantage of qualified plans to employers is: a-taxable contributions b- tax-deductible contributions c- tax-free earnings d- no lump sum payments
b- Qualified plans have these tax advantages: employer contributions are tax deductible and are not taxed as income to the employee: the earnings in the plan accumulate tax deferred: lump-sum distributions to employees are eligible for favorable tax treatment
SIMPLE plans required all of the following EXEPCT: a- employees must receive a minimum of $5,000 in annual compensation b- at least 1,000 employees c- no other qualified plan can be used d- no more than 100 employees
b- a SIMPLE plan is available to small businesses that employ not more than 100 employees receiving at least $5,000 in compensation from the employer during the previous year
which of the following terms means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors? a- morbidity b- life expectancy c- mortality rate d- risk exposure
b- life expectancy is an important concept in life settlement contracts. it refers to a calculation based on the average number of months the insured is projected to live sue to medical history and mortality factors (an arithmetic mean).
an employee quits his job on MAY 15th and doesn't convert his group life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1st. which of the following statements best describes what will happen? a- the insurer will pay nothing because the employee has terminated his group insurance and hasn't started the individual one. b- the insurer will pay the full death benefit from the group policy to the beneficiary c- the insurer will pay a reduced death benefit to the beneficiary d- the insurer will pay the death benefit minus on months premium
b- the employee usually has a period of 31 days after terminated from the group in order to exercise the conversion option. during this time the employee is still covered under the original group policy.
which of the following is the required number of participants in a contributory group plan? a- 50% b-75% c-100% d-25%
b- under a contributory group plan an insurer will require 75% of eligible employees be included in the plan.
an individual has been diagnosed with Alzheimer's disease. he is insured under a life insurance policy with the accelerated benefits rider. which of the following is true regarding taxation of the accelerated benefits? a- the entire living benefit is considered taxable income b- a portion of the benefit up to a limit is tax free, the rest is taxable income c- principle is a tax free but interest is taxed d- the entire benefit will be received tax free
b- when accelerated benefits are paid to a chronically ill insured they are tac free up to a certain limit. any amount received in excess of this dollar limit must be included in the insureds gross income
which of the following is TRUE of a qualified plan? a- it may discriminate in favor of highly paid employees b- it may allow unlimited contributions c- it has a tax benefit for both employer and employee d- it does not need to have a vesting schedule
c- a qualified plan is approved by the IRS which then gives both the employer and employee benefits in deductibility of contributions and tax deferral of growth.
if an insured worker has earned 40 quarters of coverage, the workers status under social security disability is a- correctly insured b- permanently insured c- fully insured d- partially insured
c- a worker is fully insured under social security if the worker has accumulated the required number of credits based on his or her age
a producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. this is a personal use of life insurance known as a- survivorship insurance b- juvenile protection provision c- survivor protection d- life planning
c- life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. this is known as survivor protection
who is the owner and who is the beneficiary on a KEY person life insurance policy? a- the key employee is the owner and beneficiary b- the key employee is the owner and the employer is the beneficiary c-the employer is the owner and beneficiary d- the employer is the owner and the key employee is the beneficiary
c- with the key person coverage the business (the employer) is the applicant owner premium payer and beneficiary
a tax sheltered annuity is a special tax favored retirement plan available to a- anyone b-certain age groups only c- certain groups depending on factors such as race, gender, and age d-certain groups of employees only
d- a tax sheltered annuity is a special tax favored retirement plan available only to certain groups of employees (nonprofit charitable educational religious and other 501c3) organizations including all employees in public education.
in order to qualify for conversion from a group life policy that has been terminated to an individual policy of the same coverage, a person must have been insured under the group plan for how many years? a- 1 b- 3 c- 5 d- 10
c- if the master contract is terminated every individual who has been on the plan for ay least 5 years will be allowed to convert to individual insurance of the same coverage
an employee is insured under her employer's group life plan. if she terminates her group coverage, which of the following statements is incorrect? a- this insured would not need to prove insurability for a conversion policy b- the insured may convert coverage to an individual policy within 31 days c- the premium for individual coverage will be based upon the insured's attained age d- the insured may choose to convert to term or permanent individual coverage
d- when group coverage is converted to an individual policy, the insurer will determine they type of coverage unusually permanent insurance.
which of the following is NOT true of life settlements? a- the seller must be terminally ill b- they could be used for a key person coverage c- they could be sold for an amount greater than the current cash value d- they involve insurance policies with large face amounts
a- with life settelments unlike with viatical settlments, the seller does not need to be terminally ill. they usually involve life insurance policies with a face amount of $250,000 or more key person coverage corporate owned policies or policies representing excess coverage that is no longer needed and could be sold for an amount greater than the current cash value
Which of the following statements concerning Buy-Sell agreements is true? a- buy sell agreements pay in the event of a medical emergency b- buy sell agreements are normally funded with a life insurance policy c- premium paid are deductible as a business expense d- benefits received are considered income taxable
b- a buy sell agreement is simple a contract that establishes what will be done with a business in the event that an owner dies. Buy sell agreements are normally funded with a life insurance policy
a 60-year old participant in a 401k plan takes a distribution and rolls it over to an IRA within 60 days. which of the following is true? a- the amount distribution is subject to ordinary income tax b- the amount of the distribution is reduced by the amount of a 20% withholding tax c- no taxes are due since the plan participant is over age 59.5 d- there is a 10% early withdrawal penalty
b- distributions from 401k plans are taxable as ordinary income in the year of the distribution. however, if the distribution is rolled over to a traditional IRA taxes are deferred until the required minimum IRA distribution begin (which is generally no layer than age 70.5) since this client actually took a distribution (instead of making a trustee-to-trustee roll over) the distribution is subject to 20% without holding tax.
if a retirement plan or annuity is "qualified" this means? a- it accepts after-tax contributions b-it is noncancelable c-it is approved by the IRS d- it has a penalty for early withdrawal
c- a qualified retirement plan is approved by the IRS which then gives both the employer and employee benefits such as deductible contributions and tax-deferred growth
if an immediate annuity is purchased with the face amount at death or with the cash value at surrender this would be considered a a- nonforfeiture option b- rollover c- settlement option d- nontaxable exchange
c- a settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender
which of the following is an example of liquidity in a life insurance contract? a- the death benefit paid to the beneficiary b- the flexible premium c- the money in a savings account d- the cash value available to the policyowner
d- liquidity in life insurance refers to availability of cash to the insured. some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs
which of the following statements is TRUE concerning whole life insurance? a- dividend interest is not taxable b- premiums are tax deductible c- policy loans are tax deductible d- lump-sum death benefits are not taxable
d- dividend interest is taxable, policy loans are not tax deductible, and premiums are not tax deductible
the premiums paid by the employer in a business life insurance policy are: a- never taxable to the employee b-tax deductible by the employer c- tax deductible by the employee d- always taxable to the employee
b- the premiums that an employer pays for life insurance on an employee, whereby the policy is for the employee's benefit , are tax deductible to the employer as a business expense
In group life insurance, who receives the master contract?
the employer
under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer then makes a matching contribution up to an amount equal to what percent of the employee's annual wages? a-10 b-3 c-5 d-7
b- under SIMPLE plans participating employees may defer up to be specified amount each year, and the employer can then contribute to an amount equal to 3% of the employees annual compensation. contributions and earning are both tax deferred until funds are withdrawn
when an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n) a- aleatory contract b- executive bonus c- key person policy d- fraternal association
b- when an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy this is called an executive bonus.
if $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, which of the following would be taxable annually? a-$10,000 b-$7.000 c-$3,000 d-$13,000
c- if $100,000 of life insurance proceeds were used in a settlement option for 10 years,$10,000 per year would be income tax free (as principle) and $3,000 per year would be income taxable (as interest).
when an employee terminates coverage under a group insurance policy coverage continues in force a-for 60 days b- until the employee can obtain coverage under a new group plan c- until the employee notifies the group insurance provider that coverage conversion policy is issued d- for 31 days
d- an employee has 31 days under the conversion privilege to convert to an individual policy
all of the following are TRUE of the federal tax advantages of a qualified plan EXCEPT: a- employer contributions are tax deductible as ordinary business expenses b- funds accumulate on a tax deferred basis c- employee and employer contributions are not counted as income to the employee for income tax purposes d- at distribution all amounts received by the employees are tax free
d- funds in a qualified plan accumulate on a tax deferred basis, however, at distribution any amount received by the employee will be treated as ordinary income for tax purposes.
an employee quits his job and converts his group policy to an individual policy. the premium for the individual policy will be based on his a- experiencing rating b-group rate c- insurers scheduled rate d- attained age
d- if an employee terminates membership in the insured group, the employee has the right to convert to an individual whole life policy without proving insurability. the insurer will determine what types of policy an employee may convert to, but it must be issued at a standard rate, based on the individuals attained age
which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated? a- those who have worked in the company for at least 3 years b- those who have dependents c- those who have no history of claims d- those who have been insured under the plan for at lest 5 years.
d- if the master contract is terminated, every individual who has been on the plan for at least 5 years will be allowed to convert to individual insurance of the same coverage
Under a SIMPLE plan, which of the following is TRUE regarding taxation on both contributions and earnings? a- taxes must be paid in full b- employer's matching contribution can be 50% of employee's salary c-75% of employee's contributions are taxed d- they are tax deferred until withdrawn
d- taxation is deferred on both contributions and earnings until funds are withdrawn